tax cases'remedies

8/12/2019 Tax Cases'Remedies

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Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 159694 January 27, 2006

COMMISSIONER OF INTERNAL REVENUE,Petitioner,

vs.AZUCENA T. REYES,Respondent.

x -- -- -- -- -- -- -- -- -- -- -- -- -- x

G.R. No. 163581 January 27, 2006

AZUCENA T. REYES,Petitioner,vs.COMMISSIONER OF INTERNAL REVENUE,Respondent.

D E C I S I O N

PANGANIBAN, CJ.:

Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be informed inwriting of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. Being invalid, theassessment cannot in turn be used as a basis for the perfection of a tax compromise.

The Case

Before us are two consolidated1Petitions for Review2filed under Rule 45 of the Rules of Court, assailing the August 8,2003 Decision3of the Court of Appeals (CA) in CA-GR SP No. 71392. The dispositive portion of the assailed Decision readsas follows:

"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is ANNULLED and SETASIDE without prejudice to the action of the National Evaluation Board on the proposed compromise settlement of theMaria C. Tancinco estates tax liability."4

The Facts

The CA narrated the facts as follows:

"On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 square-meter residential lot and an old housethereon (or subject property) located at 4931 Pasay Road, Dasmarias Village, Makati City.

"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or Abad),

Revenue District Office No. 50 (South Makati) conducted an investigation on the decedents estate (or estate).Subsequently, it issued a Return Verification Order. But without the required preliminary findings being submitted, itissued Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T. Reyes (or [Reyes]),one of the decedents heirs, received the Letter of Authority on March 14, 1997.

"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR), issued a preliminaryassessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (orheirs) received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amountofP14,912,205.47, inclusive of surcharge and interest.
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"On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of the heirs on theground that the subject property had already been sold by the decedent sometime in 1990.

"On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary collection letter to[Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.

"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999 byNotices of Levy on Real Property and Tax Lien against it.

"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a compromisesettlement of P1,000,000.00.

"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the heirsinability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyess] offer, pointing out that since theestate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross

value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR]demanded payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of thesubject property would be published.

"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the amountofP5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.

"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement Division,BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at public auction on August 8, 2000.

"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, sheasserted that x x x the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab initio.She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge [or] interest.

"Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed withthe August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court ofTax Appeals (or CTA), docketed as CTA Case No. 6124.

"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order, whichwas granted by the CTA on July 26, 2000. Upon [Reyess] filing of a surety bond in the amount ofP27,000,000.00, theCTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with theauction sale of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,]pending determination of the case and/or unless a contrary order is issued.

"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction over thecase[,] because the assessment against the estate is already final and executory; and (ii) that the petition was filed out oftime. In a [R]esolution dated November 23, 2000, the CTA denied [the CIRs] motion.

"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation (or RR)No. 6-2000 and Revenue Memorandum Order (or RMO) No. 42-2000 offering certain taxpayers with delinquentaccounts and disputed assessments an opportunity to compromise their tax liability.

"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or compromise) of theassessment against the estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and RMO No.42-2000.

"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA scheduled onJanuary 9, 2001, citing her pending application for compromise with the BIR. The motion was granted and the hearing

was reset to February 6, 2001.


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In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory andunequivocal in their requirement. The assessment notice and the demand letter should have stated the facts and the lawon which they were based; otherwise, they were deemed void.6The appellate court held that while administrative agencieslike the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantivedue process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of --and could effectively protest -- the basis of tax assessments against them.7Since the assessment and the demand were

void, the proceedings emanating from them were likewise void, and any order emanating from them could never attainfinality.

The appellate court added, however, that it was premature to declare as perfected and consummated the compromise ofthe estates tax liability. It explained that, where the basic tax assessed exceededP1 million, or where the settlement offer

was less than the prescribed minimum rates, the National Evaluation Boards (NEB) prior evaluation and approval werethe conditio sine qua non to the perfection and consummation of any compromise.8Besides, the CA pointed out, Section204(A) of the Tax Code applied to all compromises, whether government-initiated or not.9Where the law did notdistinguish, courts too should not distinguish.

Hence, this Petition.10

The Issues

In GR No. 159694, petitioner raises the following issues for the Courts consideration:

"I.

Whether petitioners assessment against the estate is valid.

"II.

Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and the law on whichthe assessment in question is based, after she had opted to propose several compromises on the estate tax due, and evenprematurely acting on such proposal by paying 20% of the basic estate tax due."11

The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid; and, second,whether the compromise entered into is also valid.

The Courts Ruling

The Petition is unmeritorious.

First Issue:

Validity of the Assessment Against the Estate

The second paragraph of Section 228 of the Tax Code12is clear and mandatory. It provides as follows:

"Sec. 228. Protesting of Assessment. --

x x x x x x x x x

"The taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, theassessment shall be void."

In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes hadbeen made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of formerSection 22913prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
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First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement ofmerely notifyingthe taxpayer of the CIRs findings was changed in 1998 toinformingthe taxpayer of not only the law, butalso of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, thefinal estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already ineffect. The notice required under the oldlaw was no longer sufficient under the newlaw.

To be simply informed in writing of the investigation being conducted and of the recommendation for the assessment of

the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly assessing a taxpayer. The actcannot be taken to mean that Reyes already knew the law and the facts on which the assessment was based. It does not atall conform to the compulsory requirement under Section 228. Moreover, the Letter of Authority received by respondenton March 14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the law.

The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals withremedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes.

The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or takeaway vested rights, do not fall under the general rule against the retroactive operation of statutes.14Clearly, Section 228provides for the procedure in case an assessment is protested. The provision does not create new or take away vestedrights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or bynecessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending

proceedings would impair vested rights.

Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it merelyimplements the law.

A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code.15While it isdesirable for the government authority or administrative agency to have one immediately issued after a law is passed, theabsence of the regulation does not automatically mean that the law itself would become inoperative.

At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be informed ofboth the law and facts on which the assessment was based. Thus, the CIR should have required the assessment officers ofthe Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law. The old regulation governing theissuance of estate tax assessment notices ran afoul of the rule that tax regulations -- old as they were -- should be in

harmony with, and not supplant or modify, the law.16

It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the imagination,though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in any manner, of the lawand the facts on which an assessment was based. That requirement is neither difficult to make nor its desired results hardto achieve.

Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and correspondingobligations, is given retroactive effect as of the date of the effectivity of the statute.17RR 12-99 is one such rule. Beinginterpretive of the provisions of the Tax Code, even if it was issued only on September 6, 1999, this regulation was toretroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment notice and demand letter.

Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.

No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been amended.Furthermore, in case of discrepancy between the law as amended and its implementing but old regulation, the formernecessarily prevails.18Thus, between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the lattercannot stand because it cannot go beyond the provision of the law. The law must still be followed, even though the existingtax regulation at that time provided for a different procedure. The regulation then simply provided that notice be sent tothe respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form.

Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only wasthe law here disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit.
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The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without firstestablishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: thattaxpayers should be able to present their case and adduce supporting evidence.19In the instant case, respondent has not

been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informingthe taxpayer of the governments claim, there can be no deprivation of property, because no effective protest can bemade.20The haphazard shot at slapping an assessment, supposedly based on estate taxations general provisions that areexpected to be known by the taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of the itemized deductions indicated in the notice andthe letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily orcapriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection "should bemade in accordance with law as any arbitrariness will negate the very reason for government itself."21

Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the negligence or omissionof its agents, the obligatory provision on protesting a tax assessment cannot be rendered nugatory by a mere act of the CIR.

Tax laws are civil in nature.22Under our Civil Code, acts executed against the mandatory provisions of law are void, exceptwhen the law itself authorizes the validity of those acts.23Failure to comply with Section 228 does not only render theassessment void, but also finds no validation in any provision in the Tax Code. We cannot condone errant or enterprisingtax officials, as they are expected to be vigilant and law-abiding.

Second Issue:

Validity of Compromise

It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected andconsummated, considering the earlier determination that the assessment against the estate was void. Nothing has been

settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or thesettlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the NEB

composed of the petitioner and four deputy commissioners.

Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiatedor not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we should not

distinguish.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to costs.

SO ORDERED.

ARTEMIO V. PANGANIBANChief JusticeChairperson, First Division

WE CONCUR:

CONSUELO YNARES-SANTIAGOAssociate Justice

MA. ALICIA AUSTRIA-MARTINEZAsscociate Justice

ROMEO J. CALLEJO SR.Associate Justice

MINITA V. CHICO-NAZARIOAsscociate Justice

C E R T I F I C A T I O N
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Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision hadbeen reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBANChief Justice


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Manila

FIRST DIVISIONEN BANC

G.R. No. 166387 January 19, 2009

COMMISSIONER OF INTERNAL REVENUE,Petitioners,vs.ENRON SUBIC POWERCORPORATION,Respondents.

R E S O L U T I O N

CORONA,J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Commissioner of Internal Revenue(CIR) assails the November 24, 2004 decision1of the Court of Appeals (CA) annulling the formal assessment notice issued

by the CIR against respondent Enron Subic Power Corporation (Enron) for failure to state the legal and factual bases forsuch assessment.

Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport enterprise,2filed itsannual income tax return for the year 1996 on April 12, 1997. It indicated a net loss of P7,684,948. Subsequently, theBureau of Internal Revenue, through a preliminary five-day letter,3informed it of a proposed assessment of an allegedP2,880,817.25 deficiency income tax.4Enron disputed the proposed deficiency assessment in its first protest letter.5

On May 26, 1999, Enron received from the CIR a formal assessment notice6requiring it to pay the alleged deficiencyincome tax of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax assessment.7

Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in the Court of TaxAppeals (CTA). It argued that the deficiency tax assessment disregarded the provisions of Section 228 of the NationalInternal Revenue Code (NIRC), as amended,8and Section 3.1.4 of Revenue Regulations (RR) No. 12-999by not providingthe legal and factual bases of the assessment. Enron likewise questioned the substantive validity of the assessment.10

In a decision dated September 12, 2001, the CTA granted Enrons petition and ordered the cancellation of its deficiencytax assessment for the year 1996. The CTA reasoned that the assessment notice sent to Enron failed to comply with therequirements of a valid written notice under Section 228 of the NIRC and RR No. 12-99. The CIRs motion forreconsideration of the CTA decision was denied in a resolution dated November 12, 2001.

The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held that the audit working papers did notsubstantially comply with Section 228 of the NIRC and RR No. 12-99 because they failed to show the applicability of thecited law to the facts of the assessment. The CIR filed a motion for reconsideration but this was deemed abandoned whenhe filed a motion for extension to file a petition for review in this Court.

The CIR now argues that respondent was informed of the legal and factual bases of the deficiency assessment against it.

We adopt in totothe findings of fact of the CTA, as affirmed by the CA. In Compagnie Financiere Sucres et Denrees v.CIR,11we held:

We reiterate the well-established doctrine that as a matter of practice and principle, [we] will not set aside the conclusionreached by an agency, like the CTA, especially if affirmed by the [CA]. By the very nature of its function, it has dedicateditself to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unlessthere has been an abuse or improvident exercise of authority on its part, which is not present here.

The CIR errs in insisting that the notice of assessment in question complied with the requirements of the NIRC and RRNo. 12-99.
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A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment Notice (PAN) within theprescribed period of time, or whose reply to the PAN was found to be without merit. The Notice of Assessment shallinform the [t]axpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting theaudit shall be given due course.

The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the fact, the law,rules and regulations or jurisprudence on which the assessment is based, otherwise the formal letter of

demand and the notice of assessment shall be void.(emphasis supplied)12

Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the facts on which theassessment is made. Otherwise, the assessment is void. To implement the provisions of Section 228 of the NIRC, RR No.12-99 was enacted. Section 3.1.4 of the revenue regulation reads:

3.1.4.Formal Letter of Demand and Assessment Notice.The formal letter of demand and assessment notice shall beissued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of thetaxpayers deficiency tax or taxesshall state the facts, the law, rules and regulations, or jurisprudence on

which the assessment is based, otherwise, the formal letter of demand and assessment notice shall bevoid.The same shall be sent to the taxpayer only by registered mail or by personal delivery. xxx (emphasis supplied)

It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual bases of the tax

assessment made against him. The use of the word shall in these legal provisions indicates the mandatory nature of therequirements laid down therein. We note the CTAs findings:

In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest andcompromise penalty due thereon. The Revenue Officers of the [the CIR] in the issuance of the Final Assessment Notice didnot provide Enron with the written bases of the law and facts on which the subject assessment is based. [The CIR] did not

bother to explain how it arrived at such an assessment. Moreso, he failed to mention the specific provision of the Tax Codeor rules and regulations which were not complied with by Enron.13

Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the deductions disallowed andincluded these in the gross income. It also imposed the preferential rate of 5% on some items categorized by Enron ascosts. The legal and factual bases were, however, not indicated.

The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During thepre-assessment stage, the CIR advised Enrons representative of the tax deficiency, informed it of the proposed taxdeficiency assessment through a preliminary five-day letter and furnished Enron a copy of the audit workingpaper14allegedly showing in detail the legal and factual bases of the assessment. The CIR argues that these steps sufficed toinform Enron of the laws and facts on which the deficiency tax assessment was based.

We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-dayletter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. Thesesteps were mere perfunctory discharges of the CIRs duties in correctly assessing a taxpayer.15The requirement for issuinga preliminary or final notice, as the case may be, informing a taxpayer of the existence of a deficiency tax assessment ismarkedly different from the requirement of what such notice must contain. Just because the CIR issued an advice, apreliminary letter during the pre-assessment stage and a final notice, in the order required by law, does not necessarilymean that Enron was informed of the law and facts on which the deficiency tax assessment was made.

The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand andassessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RRNo. 12-99 would be rendered nugatory. The alleged factual bases in the advice, preliminary letter and audit workingpapers did not suffice. There was no going around the mandate of the law that the legal and factual bases of theassessment be stated in writing in the formal letter of demand accompanying the assessment notice.

We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This waschanged in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the assessmentis made.16Such amendment is in keeping with the constitutional principle that no person shall be deprived of property
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without due process.17In view of the absence of a fair opportunity for Enron to be informed of the legal and factual basesof the assessment against it, the assessment in question was void. We reiterate our ruling in Reyes v. Almanzor, et al.:18

Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary hindrance. However,such collection should be made in accordance with law as any arbitrariness will negate the very reason for the Governmentitself.

WHEREFORE,the petition is hereby DENIED.The November 24, 2004 decision of the Court of AppealsisAFFIRMED.

No costs.

SO ORDERED.

RENATO C. CORONAAssociate Justice
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Manila

SECOND DIVISION

G.R. No. 136975 March 31, 2005

COMMISSION OF INTERNAL REVENUE,Petitioner,

vs.HANTEX TRADING CO., INC., respondent.

D E C I S I O N

CALLEJO, SR.,J.:

Before us is a petition for review of the Decision1of the Court of Appeals (CA) which reversed the Decision2of the Court ofTax Appeals (CTA) in CTA Case No. 5126, upholding the deficiency income and sales tax assessments against respondentHantex Trading Co., Inc.

The Antecedents

The respondent is a corporation duly organized and existing under the laws of the Philippines. Being engaged in the sale ofplastic products, it imports synthetic resin and other chemicals for the manufacture of its products. For this purpose, it isrequired to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customsunder Section 1301 of the Tariff and Customs Code.

Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligenceand Investigation Bureau (EIIB), received confidential information that the respondent had imported synthetic resinamounting to P115,599,018.00 but only declared P45,538,694.57.3According to the informer, based on photocopies of 77Consumption Entries furnished by another informer, the 1987 importations of the respondent were understated in itsaccounting records.4Amoto submitted a report to the EIIB Commissioner recommending that an inventory audit of therespondent be conducted by the Internal Inquiry and Prosecution Office (IIPO) of the EIIB.5

Acting on the said report, Jose T. Almonte, then Commissioner of the EIIB, issued Mission Order No. 398-896

datedNovember 14, 1989 for the audit and investigation of the importations of Hantex for 1987. The IIPO issued subpoenaduces tecumand ad testificandumfor the president and general manager of the respondent to appear in a hearing and

bring the following:

1. Books of Accounts for the year 1987;

2. Record of Importations of Synthetic Resin and Calcium Carbonate for the year 1987;

3. Income tax returns & attachments for 1987; and

4. Record of tax payments.7

However, the respondents president and general manager refused to comply with the subpoena, contending that its booksof accounts and records of importation of synthetic resin and calcium bicarbonate had been investigated repeatedly by theBureau of Internal Revenue (BIR) on prior occasions.8The IIPO explained that despite such previous investigations, theEIIB was still authorized to conduct an investigation pursuant to Section 26-A of Executive Order No. 127. Still, therespondent refused to comply with the subpoena issued by the IIPO. The latter forthwith secured certified copies of theProfit and Loss Statements for 1987 filed by the respondent with the Securities and Exchange Commission(SEC).9However, the IIPO failed to secure certified copies of the respondents 1987 Consumption Entries from the Bureauof Customs since, according to the custodian thereof, the original copies had been eaten by termites.10
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In a Letter dated June 28, 1990, the IIPO requested the Chief of the Collection Division, Manila International ContainerPort, and the Acting Chief of the Collection Division, Port of Manila, to authenticate the machine copies of the importentries supplied by the informer. However, Chief of the Collection Division Merlita D. Tomas could not do so because theCollection Division did not have the original copies of the entries. Instead, she wrote the IIPO that, as gleaned from therecords, the following entries had been duly processed and released after the payment of duties and taxes:

IMPORTER HANTEX TRADING CO., INC. SERIES OF 1987

ENTRY NO. DATERELEASED

ENTRY NO. DATERELEASED

03058-87 1/30/87 50265-87 12/9/87

09120-87 3/20/87 46427-87 11/27/87

18089-87 5/21/87 30764-87 8/21/87

19439-87 6/2/87 30833-87 8/20/87

19441-87 6/3/87 34690-87 9/16/87

11667-87 4/15/87 34722-87 9/11/87

23294-87 7/7/87 43234-87 11/2/87

45478-87 11/16/87 44850-87 11/16/87

45691-87 12/2/87 44851-87 11/16/87

25464-87 7/16/87 46461-87 11/19/87

26483-87 7/23/87 46467-87 11/18/87

29950-87 8/11/87 48091-87 11-27-8711

Acting Chief of the Collection Division of the Bureau of Customs Augusto S. Danganan could not authenticate the machinecopies of the import entries as well, since the original copies of the said entries filed with the Bureau of Customs hadapparently been eaten by termites. However, he issued a certification that the following enumerated entries were filed bythe respondent which were processed and released from the Port of Manila after payment of duties and taxes, to wit:

Hantex Trading Co., Inc.

Entry No. Date Released Entry No. Date Released

3903 1/29/87 22869 4/8/87

4414 1/20/87 19441 3/31/87

10683 2/17/87 24189 4/21/87

12611 2/24/87 26431 4/20/87

12989 2/26/87 45478 7/3/87

17050 3/13/87 26796 4/23/87

17169 3/13/87 28827 4/30/87

18089 3/16/87 31617 5/14/87

19439 4/1/87 39068 6/5/87

21189 4/3/87 42581 6/21/87

43451 6/29/87 42793 6/23/8742795 6/23/87 45477 7/3/87

35582 not received 85830 11/13/87

45691 7/3/87 86650 not received

46187 7/8/87 87647 11/18/87

46427 7/3/87 88829 11/23/87

57669 8/12/87 92293 12/3/87

62471 8/28/87 93292 12/7/87
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63187 9/2/87 96357 12/16/87

66859 9/15/87 96822 12/15/87

67890 9/17/87 98823 not received

68115 9/15/87 99428 12/28/87

69974 9/24/87 99429 12/28/87

72213 10/2/87 99441 12/28/87

77688 10/16/87 101406 1/5/87

84253 11/10/87 101407 1/8/8785534 11/11/87 3118 1-19-8712

Bienvenido G. Flores, Chief of the Investigation Division, and Lt. Leo Dionela, Lt. Vicente Amoto and Lt. RolandoGatmaitan conducted an investigation. They relied on the certified copies of the respondents Profit and Loss Statementfor 1987 and 1988 on file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by theinformer, as well as excerpts from the entries certified by Tomas and Danganan.

Based on the documents/records on hand, inclusive of the machine copies of the Consumption Entries, the EIIB foundthat for 1987, the respondent had importations totaling P105,716,527.00 (inclusive of advance sales tax). Compared withthe declared sales based on the Profit and Loss Statements filed with the SEC, the respondent had unreported sales in theamount of P63,032,989.17, and its corresponding income tax liability was P41,916,937.78, inclusive of penalty charge and

interests.

EIIB Commissioner Almonte transmitted the entire docket of the case to the BIR and recommended the collection of thetotal tax assessment from the respondent.13

On February 12, 1991, Deputy Commissioner Deoferio, Jr. issued a Memorandum to the BIR Assistant Commissioner forSpecial Operations Service, directing the latter to prepare a conference letter advising the respondent of its deficiencytaxes.14

Meanwhile, as ordered by the Regional Director, Revenue Enforcement Officers Saturnino D. Torres and Wilson Filamorconducted an investigation on the 1987 importations of the respondent, in the light of the records elevated by the EIIB tothe BIR, inclusive of the photocopies of the Consumption Entries. They were to ascertain the respondents liability fordeficiency sales and income taxes for 1987, if any. Per Torres and Filamors Report dated March 6, 1991 which was based

on the report of the EIIB and the documents/records appended thereto, there was aprima faciecase of fraud against therespondent in filing its 1987 Consumption Entry reports with the Bureau of Customs. They found that the respondent hadunrecorded importation in the total amount of P70,661,694.00, and that the amount was not declared in its income taxreturn for 1987. The District Revenue Officer and the Regional Director of the BIR concurred with the report.15

Based on the said report, the Acting Chief of the Special Investigation Branch wrote the respondent and invited itsrepresentative to a conference at 10:00 a.m. of March 14, 1991 to discuss its deficiency internal revenue taxes and topresent whatever documentary and other evidence to refute the same.16Appended to the letter was a computation of thedeficiency income and sales tax due from the respondent, inclusive of increments:

B. Computations:

1. Cost of Sales Ratio A2/A1 85.492923%

2. Undeclared Sales Imported A3/B1 110,079,491.613. Undeclared Gross Profit B2-A3 15,969,316.61

C. Deficiency Taxes Due:

1. Deficiency Income Tax B3 x 35% 5,589,261.00

50% Surcharge C1 x 50% 2,794,630.50

Interest to 2/28/91 C1 x 57.5% 3,213,825.08

Total 11,597,825.58

2. Deficiency Sales Tax

at 10% 7,290,082.72
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at 20% 10,493,312.31

Total Due 17,783,395.03

Less: Advanced Sales Taxes Paid 11,636,352.00

Deficiency Sales Tax 6,147,043.03

50% Surcharge C2 x 50% 3,073,521.52

Interest to 2/28/91 5,532,338.73

Total 14,752,903.2817

The invitation was reiterated in a Letter dated March 15, 1991. In his Reply dated March 15, 1991, Mariano O. Chua, thePresident and General Manager of the respondent, requested that the report of Torres and Filamor be set aside on thefollowing claim:

[W]e had already been investigated by RDO No. 23 under Letters of Authority Nos. 0322988 RR dated Oct. 1,1987, 0393561 RR dated Aug. 17, 1988 and 0347838 RR dated March 2, 1988, and re-investigated by the SpecialInvestigation Team on Aug. 17, 1988 under Letter of Authority No. 0357464 RR, and the Intelligence andInvestigation Office on Sept. 27, 1988 under Letter of Authority No. 0020188 NA, all for income and business taxliabilities for 1987. The Economic Intelligence and Investigation Bureau on Nov. 20, 1989, likewise, confronted uson the same information for the same year.

In all of these investigations, save your request for an informal conference, we welcomed them and proved thecontrary of the allegation. Now, with your new inquiry, we think that there will be no end to the problem.

Madam, we had been subjected to so many investigations and re-investigations for 1987 and nothing came outexcept the payment of deficiency taxes as a result of oversight. Tax evasion through underdeclaration of incomehad never been proven.18

Invoking Section 23519of the 1977 National Internal Revenue Code (NIRC), as amended, Chua requested that the inquirybe set aside.

The petitioner, the Commissioner of Internal Revenue, through Assistant Commissioner for Collection Jaime M. Maza,sent a Letter dated April 15, 1991 to the respondent demanding payment of its deficiency income tax of P13,414,226.40and deficiency sales tax of P14,752,903.25, inclusive of surcharge and interest.20Appended thereto were the AssessmentNotices of Tax Deficiency Nos. FAS-1-87-91-001654 and FAS-4-87-91-001655.21

On February 12, 1992, the Chief of the Accounts Receivables/Billing Division of the BIR sent a letter to the respondentdemanding payment of its tax liability due for 1987 within ten (10) days from notice, on pain of the collection tax due via a

warrant of distraint and levy and/or judicial action.22The Warrant of Distraint and/or Levy23was actually served on therespondent on January 21, 1992. On September 7, 1992, it wrote the Commissioner of Internal Revenue protesting theassessment on the following grounds:

I. THAT THE ASSESSMENT HAS NO FACTUAL AS WELL AS LEGAL BASIS, THE FACT THAT NOINVESTIGATION OF OUR RECORDS WAS EVER MADE BY THE EIIB WHICH RECOMMENDED ITSISSUANCE.24

II. THAT GRANTING BUT WITHOUT ADMITTING THAT OUR PURCHASES FOR 1987 AMOUNTEDTOP105,716,527.00 AS CLAIMED BY THE EIIB, THE ASSESSMENT OF A DEFICIENCY INCOME TAX IS STILL

DEFECTIVE FOR IT FAILED TO CONSIDER OUR REAL PURCHASES OF P45,538,694.57.25

III. THAT THE ASSESSMENT OF A DEFICIENCY SALES TAX IS ALSO BASELESS AND UNFOUNDEDCONSIDERING THAT WE HAVE DUTIFULLY PAID THE SALES TAX DUE FROM OUR BUSINESS.26

In view of the impasse, administrative hearings were conducted on the respondents protest to the assessment. During thehearing of August 20, 1993, the IIPO representative presented the photocopies of the Consumption and Import Entriesand the Certifications issued by Tomas and Danganan of the Bureau of Customs. The IIPO representative testified that theBureau of Customs failed to furnish the EIIB with certified copies of the Consumption and Import Entries; hence, the EIIBrelied on the machine copies from their informer.27
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The respondent wrote the BIR Commissioner on July 12, 1993 questioning the assessment on the ground that the EIIBrepresentative failed to present the original, or authenticated, or duly certified copies of the Consumption and ImportEntry Accounts, or excerpts thereof if the original copies were not readily available; or, if the originals were in the officialcustody of a public officer, certified copies thereof as provided for in Section 12, Chapter 3, Book VII, AdministrativeProcedure, Administrative Order of 1987. It stated that the only copies of the Consumption Entries submitted to theHearing Officer were mere machine copies furnished by an informer of the EIIB. It asserted that the letters of Tomas andDanganan were unreliable because of the following:

In the said letters, the two collection officers merely submitted a listing of alleged import entry numbers and datesreleased of alleged importations by Hantex Trading Co., Inc. of merchandise in 1987, for which they certified thatthe corresponding duties and taxes were paid after being processed in their offices. In said letters, no amounts ofthe landed costs and advance sales tax and duties were stated, and no particulars of the duties and taxes paid perimport entry document was presented.

The contents of the two letters failed to indicate the particulars of the importations per entry number, and the saidletters do not constitute as evidence of the amounts of importations of Hantex Trading Co., Inc. in 1987.28

The respondent cited the following findings of the Hearing Officer:

[T]hat the import entry documents do not constitute evidence only indicate that the tax assessments in questionhave no factual basis, and must, at this point in time, be withdrawn and cancelled. Any new findings by the IIPOrepresentative who attended the hearing could not be used as evidence in this hearing, because all the issues on

the tax assessments in question have already been raised by the herein taxpayer.29

The respondent requested anew that the income tax deficiency assessment and the sales tax deficiency assessment be setaside for lack of factual and legal basis.

The BIR Commissioner30wrote the respondent on December 10, 1993, denying its letter-request for the dismissal of theassessments.31The BIR Commissioner admitted, in the said letter, the possibility that the figures appearing in thephotocopies of the Consumption Entries had been tampered with. She averred, however, that she was not proscribed fromrelying on other admissible evidence, namely, the Letters of Torres and Filamor dated August 7 and 22, 1990 on theirinvestigation of the respondents tax liability. The Commissioner emphasized that her decision was final.32

The respondent forthwith filed a petition for review in the CTA of the Commissioners Final Assessment Letter datedDecember 10, 1993 on the following grounds:

First. The alleged 1987 deficiency income tax assessment (including increments) and the alleged 1987 deficiency sales taxassessment (including increments) are void ab initio, since under Sections 16(a) and 49(b) of the Tax Code, theCommissioner shall examine a return after it is filed and, thereafter, assess the correct amount of tax. The following factsobtaining in this case, however, are indicative of the incorrectness of the tax assessments in question: the deficiencyinterests imposed in the income and percentage tax deficiency assessment notices were computed in violation of theprovisions of Section 249(b) of the NIRC of 1977, as amended; the percentage tax deficiency was computed on an annual

basis for the year 1987 in accordance with the provision of Section 193, which should have been computed in accordancewith Section 162 of the 1977 NIRC, as amended by Pres. Decree No. 1994 on a quarterly basis; and the BIR official whosigned the deficiency tax assessments was the Assistant Commissioner for Collection, who had no authority to sign thesame under the NIRC.

Second. Even granting arguendothat the deficiency taxes and increments for 1987 against the respondent were correctly

computed in accordance with the provisions of the Tax Code, the facts indicate that the above-stated assessments werebased on alleged documents which are inadmissible in either administrative or judicial proceedings. Moreover, the allegedbases of the tax computations were anchored on mere presumptions and not on actual facts. The alleged undeclaredpurchases for 1987 were based on mere photocopies of alleged import entry documents, not the original ones, and whichhad never been duly certified by the public officer charged with the custody of such records in the Bureau of Customs.

According to the respondent, the alleged undeclared sales were computed based on mere presumptions as to the allegedgross profit contained in its 1987 financial statement. Moreover, even the alleged financial statement of the respondent

was a mere machine copy and not an official copy of the 1987 income and business tax returns. Finally, the respondentwas following the accrual method of accounting in 1987, yet, the BIR investigator who computed the 1987 income tax
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deficiency failed to allow as a deductible item the alleged sales tax deficiency for 1987 as provided for under Section 30(c)of the NIRC of 1986.33

The Commissioner did not adduce in evidence the original or certified true copies of the 1987 Consumption Entries on filewith the Commission on Audit. Instead, she offered in evidence as proof of the contents thereof, the photocopies of theConsumption Entries which the respondent objected to for being inadmissible in evidence.34She also failed to present any

witness to prove the correct amount of tax due from it. Nevertheless, the CTA provisionally admitted the said documentsin evidence, subject to its final evaluation of their relevancy and probative weight to the issues involved.35

On December 11, 1997, the CTA rendered a decision, the dispositive portion of which reads:

IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered DENYING the herein petition.Petitioner is hereby ORDERED TO PAY the respondent Commissioner of Internal Revenue its deficiency incomeand sales taxes for the year 1987 in the amounts of P11,182,350.26 and P12,660,382.46, respectively, plus 20%delinquency interest per annum on both deficiency taxes from April 15, 1991 until fully paid pursuant to Section283(c)(3) of the 1987 Tax Code, with costs against the petitioner.

SO ORDERED.36

The CTA ruled that the respondent was burdened to prove not only that the assessment was erroneous, but also to adducethe correct taxes to be paid by it. The CTA declared that the respondent failed to prove the correct amount of taxes due tothe BIR. It also ruled that the respondent was burdened to adduce in evidence a certification from the Bureau of Customs

that the Consumption Entries in question did not belong to it.

On appeal, the CA granted the petition and reversed the decision of the CTA. The dispositive portion of the decision reads:

FOREGOING PREMISES CONSIDERED, the Petition for Review is GRANTED and the December 11, 1997decision of the CTA in CTA Case No. 5162 affirming the 1987 deficiency income and sales tax assessments and theincrements thereof, issued by the BIR is hereby REVERSED. No costs.37

The Ruling of the Court of Appeals

The CA held that the income and sales tax deficiency assessments issued by the petitioner were unlawful and baselesssince the copies of the import entries relied upon in computing the deficiency tax of the respondent were not dulyauthenticated by the public officer charged with their custody, nor verified under oath by the EIIB and the BIRinvestigators.38The CA also noted that the public officer charged with the custody of the import entries was neverpresented in court to lend credence to the alleged loss of the originals.39The CA pointed out that an import entry is apublic document which falls within the provisions of Section 19, Rule 132 of the Rules of Court, and to be admissible forany legal purpose, Section 24, Rule 132 of the Rules of Court should apply.40Citing the ruling of this Court in Collector of

Internal Revenue v. Benipayo,41the CA ruled that the assessments were unlawful because they were based on hearsayevidence. The CA also ruled that the respondent was deprived of its right to due process of law.

The CA added that the CTA should not have just brushed aside the legal requisites provided for under the pertinentprovisions of the Rules of Court in the matter of the admissibility of public documents, considering that substantive rulesof evidence should not be disregarded. It also ruled that the certifications made by the two Customs Collection Chiefsunder the guise of supporting the respondents alleged tax deficiency assessments invoking the best evidence obtainablerule under the Tax Code should not be permitted to supplant the best evidence rule under Section 7, Rule 130 of the Rulesof Court.

Finally, the CA noted that the tax deficiency assessments were computed without the tax returns. The CA opined that theuse of the tax returns is indispensable in the computation of a tax deficiency; hence, this essential requirement must becomplied with in the preparation and issuance of valid tax deficiency assessments.42

The Present Petition

The Commissioner of Internal Revenue, the petitioner herein, filed the present petition for review under Rule 45 of theRules of Court for the reversal of the decision of the CA and for the reinstatement of the ruling of the CTA.
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As gleaned from the pleadings of the parties, the threshold issues for resolution are the following: (a) whether the petitionat bench is proper and complies with Sections 4 and 5, Rule 7 of the Rules of Court; (b) whether the December 10, 1991final assessment of the petitioner against the respondent for deficiency income tax and sales tax for the latters 1987importation of resins and calcium bicarbonate is based on competent evidence and the law; and (c) the total amount ofdeficiency taxes due from the respondent for 1987, if any.

On the first issue, the respondent points out that the petition raises both questions of facts and law which cannot be thesubject of an appeal by certiorari under Rule 45 of the Rules of Court. The respondent notes that the petition is defective

because the verification and the certification against forum shopping were not signed by the petitioner herself, but only bythe Regional Director of the BIR. The respondent submits that the petitioner should have filed a motion forreconsideration with the CA before filing the instant petition for review.43

We find and so rule that the petition is sufficient in form. A verification and certification against forum shopping signed bythe Regional Director constitutes sufficient compliance with the requirements of Sections 4 and 5, Rule 7 of the Rules ofCourt. Under Section 10 of the NIRC of 1997,44the Regional Director has the power to administer and enforce internalrevenue laws, rules and regulations, including the assessment and collection of all internal revenue taxes, charges andfees. Such power is broad enough to vest the Revenue Regional Director with the authority to sign the verification andcertification against forum shopping in behalf of the Commissioner of Internal Revenue. There is no other person in a

better position to know the collection cases filed under his jurisdiction than the Revenue Regional Director.

Moreover, under Revenue Administrative Order No. 5-83,45the Regional Director is authorized to sign all pleadings filedin connection with cases referred to the Revenue Regions by the National Office which, otherwise, require the signature ofthe petitioner.

We do not agree with the contention of the respondent that a motion for reconsideration ought to have been filed beforethe filing of the instant petition. A motion for reconsideration of the decision of the CA is not a condition sine qua non forthe filing of a petition for review under Rule 45. As we held inAlmora v. Court of Appeals:46

Rule 45, Sec. 1 of the Rules of Court, however, distinctly provides that:

A party may appeal by certiorari from a judgment of the Court of Appeals, by filing with the SupremeCourt a petition for certiorari within fifteen (15) days from notice of judgment, or of the denial of hismotion for reconsideration filed in due time. (Emphasis supplied)

The conjunctive "or" clearly indicates that the 15-day reglementary period for the filing of a petition for certiorari

under Rule 45 commences either from notice of the questioned judgment or from notice of denial of theappellants motion for reconsideration. A prior motion for reconsideration is not indispensable for a petition forreview on certiorari under Rule 45 to prosper. 47

While Rule 45 of the Rules of Court provides that only questions of law may be raised by the petitioner and resolved by theCourt, under exceptional circumstances, the Court may take cognizance thereof and resolve questions of fact. In this case,the findings and conclusion of the CA are inconsistent with those of the CTA, not to mention those of the Commissioner ofInternal Revenue. The issues raised in this case relate to the propriety and the correctness of the tax assessments made bythe petitioner against the respondent, as well as the propriety of the application of Section 16, paragraph (b) of the 1977NIRC, as amended by Pres. Decree Nos. 1705, 1773, 1994 and Executive Order No. 273, in relation to Section 3, Rule 132 ofthe Rules of Evidence. There is also an imperative need for the Court to resolve the threshold factual issues to give justiceto the parties, and to determine whether the CA capriciously ignored, misunderstood or misinterpreted cogent facts andcircumstances which, if considered, would change the outcome of the case.

On the second issue, the petitioner asserts that since the respondent refused to cooperate and show its 1987 books ofaccount and other accounting records, it was proper for her to resort to the best evidence obtainable the photocopies ofthe import entries in the Bureau of Customs and the respondents financial statement filed with the SEC.48The petitionermaintains that these import entries were admissible as secondary evidence under the best evidence obtainable rule, sincethey were duly authenticated by the Bureau of Customs officials who processed the documents and released the cargoesafter payment of the duties and taxes due.49Further, the petitioner points out that under the best evidence obtainable rule,the tax return is not important in computing the tax deficiency.50
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(3) To summon the person liable for tax or required to file a return, or any officer or employee of such person, orany person having possession, custody, or care of the books of accounts and other accounting records containingentries relating to the business of the person liable for tax, or any other person, to appear before theCommissioner or his duly authorized representative at a time and place specified in the summons and to producesuch books, papers, records, or other data, and to give testimony;

(4) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry;66

The "best evidence" envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting recordsof the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in thesame line of business, including their gross profit and net profit sales.67Such evidence also includes data, record, paper,document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions orfrom whom the subject taxpayer received any income; and record, data, document and information secured fromgovernment offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and theTariff and Customs Commission.

The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places no limitor condition on the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose ofthe law is to enable the BIR to get at the taxpayers records in whatever form they may be kept. Such records includecomputer tapes of the said records prepared by the taxpayer in the course of business.68In this era of developinginformation-storage technology, there is no valid reason to immunize companies with computer-based, record-keepingcapabilities from BIR scrutiny. The standard is not the form of the record but where it might shed light on the accuracyof the taxpayers return.

In Campbell, Jr. v. Guetersloh,69the United States (U.S.) Court of Appeals (5th Circuit) declared that it is the duty of theCommissioner of Internal Revenue to investigate any circumstance which led him to believe that the taxpayer had taxableincome larger than reported. Necessarily, this inquiry would have to be outside of the books because they supported thereturn as filed. He may take the sworn testimony of the taxpayer; he may take the testimony of third parties; he mayexamine and subpoena, if necessary, traders and brokers accounts and books and the taxpayers book accounts. TheCommissioner is not bound to follow any set of patterns. The existence of unreported income may be shown by anypracticable proof that is available in the circumstances of the particular situation. Citing its ruling inKenney v.Commissioner,70the U.S. appellate court declared that where the records of the taxpayer are manifestly inaccurate andincomplete, the Commissioner may look to other sources of information to establish income made by the taxpayer duringthe years in question.71

We agree with the contention of the petitioner that the best evidence obtainable may consist of hearsay evidence, such asthe testimony of third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayersubject of the investigation, hence, inadmissible in a regular proceeding in the regular courts.72Moreover, the general ruleis that administrative agencies such as the BIR are not bound by the technical rules of evidence. It can accept documents

which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. It can choose to giveweight or disregard such evidence, depending on its trustworthiness.

However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopiesof records/documents. The petitioner, in making a preliminary and final tax deficiency assessment against a taxpayer,cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the ConsumptionEntries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are merescraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer.Indeed, in United States v. Davey,73the U.S. Court of Appeals (2nd Circuit) ruled that where the accuracy of a taxpayers

return is being checked, the government is entitled to use the original records rather than be forced to accept purportedcopies which present the risk of error or tampering.74

In Collector of Internal Revenue v. Benipayo,75the Court ruled that the assessment must be based on actual facts. Therule assumes more importance in this case since the xerox copies of the Consumption Entries furnished by the informer ofthe EIIB were furnished by yet another informer. While the EIIB tried to secure certified copies of the said entries fromthe Bureau of Customs, it was unable to do so because the said entries were allegedly eaten by termites. The Court can onlysurmise why the EIIB or the BIR, for that matter, failed to secure certified copies of the said entries from the Tariff andCustoms Commission or from the National Statistics Office which also had copies thereof. It bears stressing that underSection 1306 of the Tariff and Customs Code, the Consumption Entries shall be the required number of copies as
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